Finance & Loans

Saving with an IRA

Now that the end of the year is approaching, it is time to look at ways to save for retirement, reduce tax burden and maximize tax free contributions.  If you work and your spouse stays home with your kids or you have no retirement plan at work you both can contribute to either a spousal IRA or an IRA.  There are two types of IRAs, Roth IRA and traditional IRA.

If one of you has earned income and the other is not working, you both can contribute to an IRA plan as long as the contributions do not exceed the earned income of the working spouse and no retirement plan.  The maximum contribution limit for 2012 is $5,000 ($6,000 for those who are over 50 by the year end).  No age limit to contribute to both IRAs.  However, only traditional IRA will allow you to deduct contributions from your tax return.  The Roth IRA does not allow you to deduct contributions from your tax return.  However, earnings from a Roth IRA will be tax and penalty free when you withdraw after age 59½ and you contributed for more than five years.  In order to qualify for Roth IRA your adjusted gross income should be less than $173,000 for 2012.